What is your edge ?

[riffrafffpatrol]

Quote from logic_man:

Yes, alot of after the fact examples exist, from which you can cherry-pick. On that, I agree.

I set my initial stops to not get hit. My initial stops get hit less than 3% of the time. Clearly, I know what I'm doing.

How often do your initial stops get hit?

Plus, regarding position sizing, I already can't get enough leverage to fully exploit my strategy (my Kelly "bet size" for my primary strategy is over 40%, but since my strategy also requires that I occasionally hold overnight, using day trading margin to get that amount of leverage is impossible), so what do I care about upping position size?

Traders with huge edges have different problems than traders with tiny ones.

20%.

If one is utilzing a sound risk mgmt postion sizing system-- there are rules for max capital per trade.... max capital exposed to market... these are commonly expressed as a % of total capital.... Within the trade itself to manage risk, proper position sizing has your $ amount loss not exceeding 1R. With a tighter stop in the right setup conditions - this allows for max position sizing to maximize the return. Being fully leveraged should never be an obstacle to taking advance of position sizing with a tight stop because it would mean a major violation of max capital rules in place....

Your risk tolerance is obviously very high on a number of levels... if it works for you congrats and more power to you...

This whole exercise on my part however was to convey that characterizing a stop based on HOD/LOD as "amateurish" is misguided and false in and of itself as a generality... it all depends on one's edge and timing of the entry.

Good luck to you.

 

[Crispy]

I track some global macro products. Equity indices, gold, silver, bonds, crude and the DXY. I get 3-5 trade signals a year that provide on average a 15.7% return over a 60 day period. The hit rate is better than 95%. The signals come from a model that I created using certain sentiment and statistical functions. A little open source and a little ingenuity is in the mix.

Positives - high hit rate, fat returns
Negatives - very low freq, need to go big on each signal

It took me a decade of mild losses to figure out something that works for me and I consider it an edge. Been trading it for two years now live.

 

[nLepwa]

We havn't see many edges in this thread so far...

People either speak of their strategies (strategy /= edge) or their brain (brain = not quantified = convenient illusion = dumb luck /= edge).

The two edges I use the most:
1. Prices tend to exhibit autocorrelation in longer timeframes
2. Volatility-adjusted returns have a normal distribution

Ninna

 

[newwurldmn]

Quote from nLepwa:

We havn't see many edges in this thread so far...

People either speak of their strategies (strategy /= edge) or their brain (brain = not quantified = convenient illusion = dumb luck /= edge).

The two edges I use the most:
1. Prices tend to exhibit autocorrelation in longer timeframes
2. Volatility-adjusted returns have a normal distribution

Ninna

how are those an edge?

 

[nLepwa]

Quote from newwurldmn:

how are those an edge?

Both are consistant statistical processes (i.e. stationary processes) that can be exploited to build positive expectancy trading strategies.

I think it would be the definition of an edge, wouldn't it?

Ninna

 

[newwurldmn]

Quote from nLepwa:

Both are consistant statistical processes (i.e. stationary processes) that can be exploited to build positive expectancy trading strategies.

I think it would be the definition of an edge, wouldn't it?

Ninna

I think that falls into the "I'm smarter than you category." Why aren't bigger better capitalized firms exploiting the same phenomina?

Edge is more platform: better technology, better information, better capital, access to non-profit motivated counterparties, etc.

Virtually no one here has any edge except maybe the capital.
Doesn't mean that they can't or won't make money. But it's a lot harder.

Warren Buffet has a reputation that gives him access to fantastic opportunities. We don't have that. That's a real edge.

Big Banks have acccess to cheap financing, counterparties trading for reasons other than profit (accounting, etc), and access to good flow information. That is real edge.

Petterfy (of TimberHill) brought computers to the Amex floor. He could calculate blackscholes on the fly with greater accuracy. That was real edge back then.

In those seats evena monkey could make money.

 

[riffrafffpatrol]

Quote from riffrafffpatrol:

20%.

If one is utilzing a sound risk mgmt postion sizing system-- there are rules for max capital per trade.... max capital exposed to market... these are commonly expressed as a % of total capital.... Within the trade itself to manage risk, proper position sizing has your $ amount loss not exceeding 1R. With a tighter stop in the right setup conditions - this allows for max position sizing to maximize the return. Being fully leveraged should never be an obstacle to taking advance of position sizing with a tight stop because it would mean a major violation of max capital rules in place....

Your risk tolerance is obviously very high on a number of levels... if it works for you congrats and more power to you...

This whole exercise on my part however was to convey that characterizing a stop based on HOD/LOD as "amateurish" is misguided and false in and of itself as a generality... it all depends on one's edge and timing of the entry.

Good luck to you.

Incidentally logicman - for yet another example -- IBM. LOD yesterday - $ 194.85. Look how price left that level yesterday. Fast forward to today-- look at how price capitulated down to that level-- but where did it stop? Below LOD to sweep the amateurs? No-- it stopped within $ .06. $ .06! The current bounce is over $ .50.

Olix- study this chart. You will find the same setups over and over and over in all type of markets. Will you always be right? Of course not. But if you understand the nuances (and there are a ton of them-- almost every day I learn a new one)... your probabilities will be high.

 

[nLepwa]

Quote from newwurldmn:

I think that falls into the "I'm smarter than you category." Why aren't bigger better capitalized firms exploiting the same phenomina?

Edge is more platform: better technology, better information, better capital, access to non-profit motivated counterparties, etc.

Virtually no one here has any edge except maybe the capital.
Doesn't mean that they can't or won't make money. But it's a lot harder.

Warren Buffet has a reputation that gives him access to fantastic opportunities. We don't have that. That's a real edge.

Big Banks have acccess to cheap financing, counterparties trading for reasons other than profit (accounting, etc), and access to good flow information. That is real edge.

Petterfy (of TimberHill) brought computers to the Amex floor. He could calculate blackscholes on the fly with greater accuracy. That was real edge back then.

In those seats evena monkey could make money.

I agree with you, they are better edges than the ones I am using.
And I agree with your list.

1. Access to special types of informatinon.
2. Access to special types of technology.
3. Access to favorable funding or special types of capital.
4. Access to special types of products or opportunities.
5. Access to special (non-profit driven) counterparties.

The two ones I give are also edges as they are stationary processes that allow for positive expectancy (like the ones in your list). Edges do not need to be secret or have limited access to be edges.

Ninna

 

[logic_man]

Quote from riffrafffpatrol:

Incidentally logicman - for yet another example -- IBM. LOD yesterday - $ 194.85. Look how price left that level yesterday. Fast forward to today-- look at how price capitulated down to that level-- but where did it stop? Below LOD to sweep the amateurs? No-- it stopped within $ .06. $ .06! The current bounce is over $ .50.

Olix- study this chart. You will find the same setups over and over and over in all type of markets. Will you always be right? Of course not. But if you understand the nuances (and there are a ton of them-- almost every day I learn a new one)... your probabilities will be high.

So what? I find my setup with the 3% stop-out rate in all kinds of markets, too.

I don't lack for trading opportunities because of the way I set my initial stops.

 

[TheBlackHand]

Quote from nLepwa:

I agree with you, they are better edges than the ones I am using.
And I agree with your list.



The two ones I give are also edges as they are stationary processes that allow for positive expectancy (like the ones in your list). Edges do not need to be secret or have limited access to be edges.

Ninna

I'd agree.

The more inbedded the edge is, the better (lets call it type 1 edge). The institutions with the higher degree of type 1 edge built into their business due to their size/credit lines/technology access also tend to carry more systemic risk - a big down side. where as say a small-medium sized hedge fund may be able to display a lesser extent of edge (type 2) such as the ones you mentioned earlier. It is still never the less still an edge IMO.

'getting out of bed earlier than the next guy' isn't an edge as most here seem to think.